Following upon last year’s release of the Panama Papers, the new documents show that the world’s richest individuals and corporations are using legal and possibly illegal methods to avert paying their fair share of taxes. The federal government’s current tax proposals do not address these patently unfair strategies.

Several key federal Liberals are again on the Front pages with their involvement in these tax schemes. Major fundraiser Peter Bronfman and former Senator Leo Kolber are two of the key players. And, although there isn’t any clear evidence that their actions were illegal, they clearly don’t pass the fairness sniff test. As Linda McQuaig has written Kolber was at the heart of a 1992 scheme to transfer a $2 Billion Canadian family trust out of Canada without the payment of $700 Million in taxes. It was suspected at the time that that the money belonged to the Bronfman family.

McQuaig also reports that Kolber convinced then Prime Minister Chretien to appoint him to the chair of the Senate Finance Committee. The Committee recommended changes to capital gains taxation which were included in a subsequent budget. These amendments to the tax code reduced taxes of the top 1% by nearly $8 Billion from 2000 to 2010.

Canadians tend to be more deferential to elites than those in other countries. Perhaps it’s our relatively small population but it appears that Canada’s rich have little shame about their blatant tax avoidance strategies. Canada is also one of the few wealthy countries which doesn’t measure the “tax gap” – a measure of the difference between the taxes due and the amount collected.

Precarious work and precarious pensions

In the meantime, support to reduce economic unfairness is coming from unusual quarters. The Sears bankruptcy and the loss of the workers’ pensions continues to be a hot button issue. Arch conservative, Financial Post comment editor Terrence Corcoran asserts that Pensioners are not lenders. He notes that pensioners should be first in line to be paid when a company goes bankrupt. Astutely he notes, “Lenders and other corporate service providers are sophisticated operators who can make decisions and choices about whether to do business with a company. Corporate finances can or should be structured to accommodate pension liabilities. Employees with pension plans are in no position to make such choices.”

William Robson, President of the right-of-centre CD Howe Institute also decries the Sears “disaster” claiming we must fund pensions properly. He asserts, “Employers who make pension promises – public or private sector – should fund them. Not just on the basis of convenient assumptions, but on the ability to pay out even when things go wrong. If they won’t do it on their own, regulators and voters should force the issue.”

Finally, while some have been perplexed that inflation in Canada and other countries remains stubbornly low, Left-of-centre economist Andrew Jackson asserts that the large numbers of precariously employed workers mean that the lion’s share of the benefits of economic growth go to the rich. Giving money to workers means it is spent quickly and locally. But giving it to the rich means it is too often stashed in tax havens. As John Maynard Keynes noted our economy is made by human law not natural law. Just as we used public policy to enhance equality after the Second World War and to promote inequality since 1980, we can make a more equal world now.

Unfortunately the federal government seems to have completely botched the politics of tax reform. In fact, the media and opposition focus is mainly on Finance Minister Bill Morneau’s personal finances. As mentioned in a previous post, the federal government’s tax reform proposals won’t touch the biggest tax avoidance mechanisms of stock options and capital gains. Mr. Morneau (and Mr. Trudeau) seem to be beneficiaries of these tactics. And, he didn’t put his assets into a blind trust as was recommended by the ethics commissionaire. On Thursday he announced he would donate any money he has made to charity. But the public discourse seems to have moved away from tax reform and is now focussed on Morneau’s fight for political survival.

We have been recently reminded that economic fairness goes well beyond fair taxation. As Linda McQuaig outlined this week, Sears Canada’s demise left thousands of workers with no pensions while the US based owner paid himself huge dividends and drained the company of hundreds of millions of dollars. McQuaig points out that the workers’ plight was not so much an act of nature as one of laws biased to the well-to-do.

The fight for economic and social justice is never smooth. We need a broad and long perspective to make Canada a more equitable country.

]]>Income inequality: Canada on the Brinkhttps://doctorsforfairtaxation.ca/2017/10/11/income-inequality-canada-on-the-brink/
Wed, 11 Oct 2017 20:24:24 +0000https://doctorsforfairtaxation.ca/?p=95On Monday, economist Andrew Jackson had an article in Globe and Mail, “Census shows income inequality is on the rise” which documents increasing Canadian market income inequality. From 2005 to 2015 median individual incomes rose 12.7% but the top one percent increased their market income by 16.4%.

The good news is that the Organization for Economic Cooperation and Development (OECD) says that after taxes and transfers (e.g. old age pensions, social assistance, etc) Canadian economic inequality is about the same now as it has been for two decades. However, if market inequality grows, eventually the tax system and government programs cannot keep up.

That means we have to consider labour market reforms as well as fair taxation to ensure economic equity. As I pass through Toronto’s Pearson airport once a week, or so, I frequently see picket lines. Often this is because the workers have had their employer’s contract “flipped”. In other words every two years, Pearson contracts with a new temporary worker company which fires the existing workers and then hires them back for lower wages and more “flexible” working conditions. We can’t get better economic equality in Canada without banning these abhorrent practices while we implement fairer taxation.

]]>Six facts you need to know about Ottawa’s tax reformshttps://doctorsforfairtaxation.ca/2017/10/06/six-facts-you-need-to-know-about-ottawas-tax-reforms/
Fri, 06 Oct 2017 21:27:33 +0000https://doctorsforfairtaxation.ca/?p=93Good column by Toronto Star business columnist David Olive dealing with some common myths about the Federal Government’s tax reforms. It looks more and more that the federal government will cave on substantial parts of their tax reform package. Of course they needed to fix a few glitches and implement fair transition periods for the reforms. But, increasingly it looks like Minister Morneau has fumbled the ball politically. Let your MP know you support the government’s changes for small business taxation AND you want tax reform that would really raise money — e.g. on stock options and capital gains, and a Tobin tax on financial speculation.
]]>Don’t let the shrill voices prevail. Contact the Finance Ministerhttps://doctorsforfairtaxation.ca/2017/09/29/see-michael-wolfsons-call-to-action/
Fri, 29 Sep 2017 17:15:58 +0000https://doctorsforfairtaxation.ca/?p=89University of Ottawa Economics Professor Michael Wolfson has studied equity issues his whole career and much of the current policy discourse is due to his research. His recent posting at the Evidence Network asks, “Should the loudest voices prevail on proposed tax reform?” It looks like the Federal government has not played its politics very well and Finance Minister Morneau looks like he is going make some compromises. Some are needed, like not taxing the selling of a farm to a family member higher than if selling to a stranger. And, there will need to be a transition for professionals, like doctors, who planned their financial future on the basis of legal (albeit unfair) tax savings. But it looks like Mr. Mourneau will cave on allowing more Canadian Controlled Private Corporations to grow savings when their purpose is investment for retirement versus investment in the company. Let the Finance Minister’s office know you support the tax changes and that tax reform should be extended to capital gains, stock options, and family trusts like the ones he and the Prime Minister have.
]]>Canadian Centre for Policy Alternatives Report de-bunks myths on income sprinklinghttps://doctorsforfairtaxation.ca/2017/09/27/canadian-centre-for-policy-alternatives-report-de-bunks-myths-on-income-sprinkling/
Wed, 27 Sep 2017 01:34:20 +0000https://doctorsforfairtaxation.ca/?p=87There are a lot of myths about the government’s policy proposals. Some of them concern so-called “income sprinkling”, that is corporations giving income to family members who do not really work for the corporation. According to a new study by the Canadian Centre for Policy Alternatives:

“Nearly all of the families who benefit most from income sprinkling are headed by male income earners, which undercuts claims that the current loophole is positive for gender equality, and almost half of all benefits flow to the richest 5% of families—those earning more than $216,000 a year. Families headed by professionals, particularly physicians, lawyers, accountants and those in real estate and insurance, are most likely to benefit from the income-sprinkling loophole.

On the other hand, more traditional small businesses, such as family-run farms or restaurants, are 2.5 times less likely than professionals to benefit from income sprinkling. Even among health care businesses—the group most likely to benefit from the current sprinkling loophole —three-quarters of families see little or no tax gain from distributing dividends among family members.”

The vast majority of Canadians who benefit from income sprinkling are well to do. Let’s have a fairer tax system for all of us.

]]>Columnists of Different Political persuasion support the Federal Government’s proposed tax changeshttps://doctorsforfairtaxation.ca/2017/09/24/__trashed-3/
Sun, 24 Sep 2017 14:39:28 +0000https://doctorsforfairtaxation.ca/?p=69Columnists across the political spectrum support the Federal tax proposals

Veteran columnist and Economics PhD, Tom Walkom supports the government legislation although he is wary of the Federal government’s ability to handle the heat from doctors, some small business owners, and especially the financial services folks who have a major interest in the current system.

And, of course evidence mounts that the current Liberal government proposals are going after the rich but avoiding the ultra rich. The changes to CCPCs are touted to raise an additional $250 million in revenue but the Liberals have so far ignored change to taxation for capital gains (outside of CCPCs), stock options, and family trusts where many billions on new revenue might be fund.

]]>Dr. Hasan Sheikh: It’s time to change the way we discuss doctors and taxeshttps://doctorsforfairtaxation.ca/2017/09/22/dr-hasan-sheikh-its-time-to-change-the-way-we-discuss-doctors-and-taxes/
Fri, 22 Sep 2017 18:19:39 +0000http://doctorsforfairtaxation.ca/?p=3On Friday September 22nd the Globe and Mail Report on Business section published a commentary by Dr. Hasan Sheikh supporting the tax proposals. Dr. Sheikh gets further into the overall physician compensation issue. Doctors know how the current methods of remuneration are mainly very inequitable. The predominant fee for service payment system leads to tremendous inequities for doctors. For more about physician payment and its reform see my 2004 Prescription for Excellence chapters 9 and 14. We’ll be talking about this issue more and more in the next few years.
]]>Op-Ed in the Toronto Starhttps://doctorsforfairtaxation.ca/2017/09/21/op-ed-in-the-toronto-star/
Thu, 21 Sep 2017 21:30:55 +0000http://doctorsforfairtaxation.ca/?p=54The Toronto Star published our op-ed: Doctors say tax us: Canada is worth it.

Across the country, hundreds of doctors are signing on for tax fairness.

]]>Doctors say tax us! Canada is worth ithttps://doctorsforfairtaxation.ca/2017/09/20/doctors-say-tax-us-canada-is-worth-it/
https://doctorsforfairtaxation.ca/2017/09/20/doctors-say-tax-us-canada-is-worth-it/#commentsWed, 20 Sep 2017 12:14:11 +0000http://doctorsforfairtaxation.ca/?p=41During the past month many doctors have mobilized to oppose the tax changes proposed by the Federal government for individuals who are incorporated. We say that the government should move ahead with these plans and go much further in pursuing Canadian economic equity. We recommend that our physician colleagues should resolve their financial issues through negotiations with their ministries of health.

Canada’s poverty rate is 20th out of 31 OECD countries.[1] The Canadian poverty rate went up slightly from 2005 to 2015 to 14.2 per cent representing 4.8 million people.[2] The child poverty rate was up marginally to 17.1%. Ominously senior’s poverty rates which had fallen dramatically for two decades increased from 12.0% to 14.5%.

We know that less equal societies are less healthy. Even the well to do in less equal societies have worse health than the wealthy in more equal societies. Lower income Canadians have higher rates of most health problems and it’s not because they get sick and then get poor. We could save twenty percent of our health budget if all Canadians were as healthy as the one fifth in the highest income brackets.[3]

The Federal government campaigned on a platform of tax fairness. The government implemented a new tax bracket for very high income Canadians and increased the Canadian Child Tax Benefit. This was a good start.

Finance Minister Morneau’s proposed reforms, outlined in a July discussion paper,[4] focus on individuals who are incorporated. These include over 60% of physicians.[5] These measures are estimated to increase tax revenues by $250 million. Notably, the federal government opted not to make changes in the taxation of stock options or capital gains which would have enhanced revenues by almost $1Billion and $10 Billion respectively.[6] These instruments significantly exacerbate economic inequality.

There are three main changes proposed for the taxation of Canadian Controlled Private Corporations (CCPCs). An owner will still be permitted to employ a relative but there will be tighter requirements for proof that they actually do work before salaries can be “sprinkled” upon them. It will no longer be possible to convert capital gains into dividends that would be taxed at lower rates. And, the government has opened discussion on the way in which investment income within the corporation is taxed.

These are eminently fair initiatives. In fact, University of Ottawa professor Michael Wolfson’s research reveals the current situation is increasing economic inequality.[7] Canadians in the bottom 90% are very unlikely to own a CCPC but 80% of those in the top 0.1% are CCPC owners and most have two or more. CCPC income is essentially nil for the bottom 90% but adds an average of $100,000 to the assets of the top 1% and $3 million to the assets of the top 0.01%.

Some of our medical colleagues feel angry and betrayed. They assert that provincial governments negotiated lower fees with provincial medical associations in return for allowing physicians to incorporate. They also allege that continued lower taxes for doctors are payback for the lack of pensions, maternity benefits, childcare, and other benefits,

We would say that such concerns cannot justify an inherently unfair situation in our tax code, and especially one that worsens income inequality with adverse consequences for Canadians’ health. We would urge provincial medical associations to take these issues up at negotiations with their respective provincial governments. Roughly two-thirds of income taxes are paid to the federal government and the provinces blatantly used previous deals to offload their responsibilities onto the federal government.

And we urge all physicians to support universal child care, pensions, and maternity benefits. To quote CCF founding leader JS Woodsworth, “What we desire for ourselves, we wish for all. To this end, may we take our share in the world’s work and the world’s struggles.”

Finally, the Federal government should institute new policies for stock option taxation and capital gains as part of its ongoing review of the tax code. We agree with the 1966 Royal Commission on Taxation that, “The first and most essential purpose of taxation is to share the burden of the state fairly among all individuals and families.” Please tax us. Canada is worth it.